A significant shift in India's real estate landscape is underway, with developers increasingly turning their backs on affordable housing projects in favor of high-end, luxurious developments. This strategic pivot is now compelling banks and housing finance companies to fundamentally reconsider their home loan market strategies, as highlighted during the Antique Stock Broking BFSI Conference 2025.
The Exodus from Affordable Housing
The core of the issue lies in developer economics. Building homes priced under Rs 50 lakh has become financially unattractive for most developers. The primary culprits are soaring land acquisition costs, significantly lower profit margins compared to luxury segments, and a perceived lack of sufficient government incentives. This trend is drastically reducing the supply of budget-friendly homes across the country.
Housing finance experts at the conference pinpointed two major challenges stemming from this shift. Firstly, there is a clear and growing reluctance among builders to undertake affordable housing projects. Secondly, in Tier 1 and Tier 2 cities, traditional affordable housing localities are being rapidly transformed by premium redevelopments and new luxury constructions.
Mumbai: A Case Study in Market Polarization
The situation is especially acute in metropolitan hubs like Mumbai. Here, exorbitant land prices have rendered typical affordable housing projects nearly impossible for developers to execute viably. Instead, the market is witnessing a surge in new launches within the Rs 2 to 3 crore price bracket, even as the pipeline for homes for the budget-conscious buyer continues to shrink alarmingly.
How Lenders Are Adapting Their Playbook
This developer-led shift is forcing a strategic overhaul in the lending sector. According to a post-conference report, traditional banks are not inherently structured for the granular, micro-level assessment required for affordable housing loans. Consequently, banks are expected to enter this segment indirectly through co-lending partnerships with specialized institutions rather than taking on direct exposure.
For Housing Finance Companies (HFCs) to stay competitive, the report suggests a geographical expansion is essential. They must deepen their presence in Tier 3 and Tier 4 cities, where land costs are relatively lower and the demand for affordable housing remains robust.
Simultaneously, with public sector and large private banks dominating the salaried customer segment through aggressive pre-approved offers, experts advise focusing on new customer segments. Proprietorship and partnership firms present a strategic opportunity. While assessing cash flow for these non-salaried professionals is more complex, they offer lenders higher yields and face less cut-throat competition from big banks.
The report elaborated on this premium shift, noting that by targeting these higher-value customers, lenders can achieve disbursement targets with fewer individual loan accounts, thereby optimizing operational effort and cost.
